FTC Looks to Court, Congress to Outlaw Pay-for-Delay Deals
By Mari Serebrov
Adamant that pay-for-delay settlements between brand- and generic drugmakers are anticompetitive, the FTC is leaving no stone unturned in its efforts to get the settlements outlawed.
Even as the commission was preparing for a Supreme Court hearing Monday on FTC v. Actavis Inc., it was working with lawmakers to get legislation enacted to bar the agreements or make them less attractive. One bill that enjoys bipartisan support, S. 214, would prohibit brand companies from compensating generic drugmakers for delaying the market entry of generic competition.
It's not the delay in getting a generic to market that bothers the FTC. It's the money being paid for the delay. A logical compromise settlement between the brand company saying its patent is valid and the generic company challenging it would be a market entry date prior to patent expiration, Deputy Solicitor General Malcolm Stewart told the Supreme Court, arguing on behalf of the FTC. Where that date falls would depend on the strength of the patent, he added.
But a payment from the brand company tends to skew the entry date, Stewart said, as it tends to provide an incentive for the generic company "to agree to an entry date later than the one that it would otherwise insist on."
Pay-for-delay settlements, also known as reverse payments, are unique to the biopharma industry and are an unintended result of the Hatch-Waxman Act, which provided generic companies a market incentive to challenge drug patents.
"I have the feeling that Hatch-Waxman made a mistake," Justice Antonin Scalia told Stewart. "It did not see that it would produce this kind of . . . payment. And in order to rectify the mistake, the FTC comes in and brings in a new interpretation of antitrust law that did not exist before."
The question of pay-for-delay has been batted around in the lower courts for more than a decade, and three appellate courts have ruled that the agreements are legal – as long as they don't delay market access to a generic beyond the patent expiration of the brand drug.
But last year, the U.S. Court of Appeals for the Third Circuit decided that such settlements are, on their face, anticompetitive, striking down two Merck & Co. Inc. agreements that the 11th Circuit had upheld. (See BioWorld Today, July 18, 2012, and Aug. 28, 2012.)
In rejecting the "scope of the patent" test used by the other circuits, the Third Circuit applied a "quick look" mode of antitrust analysis, in which it held that "any payment from a brand manufacturer that accompanies an agreement by the generic manufacturer not to market its drug for some period of time constitutes prima facie evidence of an unreasonable restraint of trade." The drugmakers' only defense, according to the court, is to show that the payment provides a pro-competitive benefit that would otherwise be unavailable.
Although Merck appealed to the Supreme Court, the justices decided to hear Actavis instead. In that case, the 11th Circuit had rejected the FTC's claims that Actavis, formerly Watson Pharmaceuticals Inc., and other generic drugmakers violated the law by agreeing to accept $42 million for holding off the marketing of generic forms of Solvay Pharmaceuticals Inc.'s Androgel (testosterone gel). (See BioWorld Today, Oct. 8, 2012.)
Should the Supreme Court agree with the FTC and the Third Circuit, it would deprive drugmakers of a "fundamental right for all businesses" to settle litigation and provide certainty for their shareholders, Actavis President and CEO Paul Bisaro said on a media call following Monday's hearing. Such a decision would force generic companies to seriously reconsider challenging brand patents, which could delay generic competition, he added.
Meanwhile, the biopharma industry is urging Congress not to move on new legislation until the Supreme Court issues its decision in Actavis, which is expected in June. Congress should take its cue from the court on this issue, Bisaro said. S. 214, the Preserve Access to Affordable Generics Act, has been sitting in the Senate Judiciary Committee since being introduced last month.
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